Home buyers unrealistic about home value appreciation

A recent survey by Zillow found that 42 percent of prospective home buyers believe home values typically appreciate by 7 percent a year. Historically, home values in a normal market tend to appreciate by 2-5 percent annually. In the survey, Zillow surveyed prospective home buyers and asked basic questions about the home-buying process. Despite the unrealistic expectations about home value appreciation, respondents seem fairly knowledgeable about the home-buying process, answering 65 percent of questions correctly.

However, several important parts of the process confused them. Two in five (41 percent) buyers think they are required to buy private mortgage insurance (PMI) regardless of the amount of their down payment. Additionally, more than half of prospective home buyers who were polled confuse appraisals and inspections. Fifty-six percent said the purpose of an appraisal was to determine if the home is in good condition, when in fact, that is the purpose of an inspection.

Additional Survey Findings:

• More than one-third (37 percent) of prospective home buyer respondents believe buying homeowner's insurance is optional.
• Nearly half of polled prospective home buyers in the study do not understand when they will actually own the home they intend to buy. Forty-seven percent said a prospective buyer owns a home after the purchase contract is signed.
• The majority (87 percent) of polled prospective home buyers know that closing costs are negotiable and can vary by bank and lender.